Leave types in India: a complete guide for HR

Leave policy is where HR flexibility meets statutory floors. India has no single national leave law for private employment. Instead, minimum leave comes from state Shops and Establishments Acts and the Factories Act, and companies layer their own policy on top. The result is a lot of variation, which is exactly why a clear, consistent leave policy matters.

The common leave types

Type	Purpose and typical behaviour
Earned or Privilege leave (EL/PL)	Planned time off; accrues monthly; usually carries forward up to a cap; encashable
Casual leave (CL)	Short, unplanned absences; usually lapses at year-end
Sick leave (SL)	Illness; may need a medical certificate beyond a few days
Maternity leave	Statutory 26 weeks under the Maternity Benefit Act
Paternity leave	Company policy; no central mandate for private employers
Comp-off	Time off in lieu of working a holiday or weekly off
Bereavement / marriage leave	Policy-based, short, occasion-specific
Leave without pay (LWP)	Unpaid absence once other balances are exhausted

Accrual and carry-forward

Earned leave typically accrues monthly, for example 1.5 to 2.5 days a month depending on policy and state minimums. It usually carries forward up to a cap; leave beyond the cap either lapses or is encashed, per policy. Casual and sick leave often do not carry forward and lapse at year-end.

Proration is essential: joiners and leavers should accrue leave for the part of the year they actually work, not a full year's entitlement.

Encashment

Leave encashment usually applies to earned leave. It is valued on Basic + DA and paid either annually or on exit. On exit, leave encashment has its own tax exemption under Section 10(10AA), with amounts above the limit taxable. Encashing casual or sick leave is uncommon.

The sandwich rule

Policies differ on whether holidays and weekly offs that fall inside or around a leave count as leave. Under a "sandwich" policy, a weekly off between two leave days is counted as leave; under a non-sandwich policy, it is not. This choice materially affects both balances and payroll, so it must be explicit in the policy, not left to interpretation.

Statutory floors to respect

State Shops and Establishments Acts and the Factories Act set minimum earned leave, often expressed as one day of leave for a number of days worked, along with rules on carry-forward and, in some states, minimum accumulation. Company policy can be more generous but not less.

Common mistakes to avoid

• Granting a full year's leave to a mid-year joiner without proration.
• Leaving the sandwich rule ambiguous.
• Encashing on gross instead of Basic + DA.
• Ignoring state statutory minimums.
• Letting balances drift because accrual and lapse are done manually.

Frequently asked questions

Is paternity leave mandatory? Not for private employers under a central law; it is a policy choice.

Can sick leave carry forward? Usually not, but policy and state rules vary.

How is encashment taxed? Earned leave encashment on exit is exempt up to the Section 10(10AA) limit, with the balance taxable.

Key takeaways

• India has no single leave law; policy layers on state and factory minimums.
• Earned leave accrues and carries forward; casual and sick usually lapse.
• Encashment is on Basic + DA, exempt up to limits on exit.
• The sandwich rule must be explicit.

NeevHR models every leave type with its own accrual, carry-forward and encashment rules, prorates for joiners and leavers, and shows employees a live balance, so policy is enforced consistently rather than reconstructed by hand.